Cisco Switching It Up as Recovery Takes Hold

What's at the core of Cisco earnings growth? Look no further than its
core business.

Related Articles

The global economic recovery, at least in terms of network spending, is
just around the corner -- according to networking giant Cisco Systems, that
is.

Cisco reported positive revenue and earnings growth for its second fiscal
quarter of 2010, beating its own earlier guidance as well as analyst
expectations.

Though Cisco operates across multiple market segments including
networking, collaboration and consumer electronics, it's switching that
remains the core of its business, and the heart of its most recent growth.

"I think what you're seeing is that switches are often tied to success in
the enterprise, government, and commercial markets, all of which went well
for us on a global basis," Cisco CEO John Chambers said during his company's
earnings call. "As you do collaboration and as video starts to take off,
most customers are looking at switches more than just a concentrator for one
element of that. It is the base on which we build our strategies for
collaboration, security, video strategies and integration strategies."

For the second quarter of fiscal 2010, Cisco reported net revenues of
$9.8 billion, which is an 8 percent year-over-year increase, double what Cisco itself
had forecast in the first quarter and ahead of Wall Street expectations.
Net income rose by 23 percent before charges, growing to $1.9 billion or
$0.32 per share. Moving forward, Cisco provided third-quarter fiscal 2010
revenue guidance of 23 to 26 percent growth from last year's $8.2 billion in
net sales.

Leading the way for Cisco's quarter was its switching business, with
quarterly revenues of $3.4 billion -- up by 13 percent from the previous
year. On a sequential Q1-to-Q2 basis, Cisco's switching revenue grew by 19
percent.

Cisco CFO Frank Calderoni noted on the company's earning call that the
sequential growth in switching was Cisco's highest quarter-to-quarter growth
in switching revenue in more than a decade.

In particular, Chambers singled out two key switching platforms that has
strong growth.

"The Nexus 5000 and 7000 showed extremely strong year-over-year
improvements as their customer acceptance dramatically increased, with
revenue growth of approximately 450 percent for the Nexus 5000
year-over-year, and 140 percent for the 7000," Chambers said.

The Nexus
switching family was announced in January 2008 with the Nexus 7000
switch as the first in the new product line.

Overall, Chambers is optimistic about his company's prospects for 2010 as
his recession
playbook and management strategy for driving collaboration within Cisco
pays off.

"We're back to record profits and we did that during a very tough time,
and that's still with allocating a huge amount of our resources to parallel
areas, new market adjacencies that don't generate any revenue," Chambers
said during his company's earnings call. "So our collaboration model is
working."

Looking out at the broader economy beyond just Cisco, Chambers is also
positive about the global economic recovery.

"Clearly, the signals to us were extremely good this quarter," Chambers
said. "And I'm hard pressed to think of a single country leader or
government leader [or] business leader that I've called on that wasn't more
optimistic about their country momentum or their business momentum now
versus just even six months [ago] in terms of direction."